Question 1The target capital structure for QM Industries is 35% common stock, 8% preferred and 57% debt. If the cost of common equity for the firm is 17.4% the cost of preferred 9.6% the before tax cost of debt is 7.5% and the firm’s tax rate is 35% what is QM weighted average cost of capital? Can you show the steps to solve.
Question 2Crypton Electronics has a capital structure consisting of 43 % common stock and 57% debt. A debt issue of $1000 par value, 6.5% bonds that mature in 15 years and pay annual interest will sell for $972. Common stock of the firm is currently selling for $30.09 per share and the firms expects to pay a $2.29 dividend next year. Dividends have grown at the rate of 5.4% per year and are expected to continue to do so for the foreseeable future. What is Crypton’s cost of capital where the firm’s tax rate is 30%.
